T.K. Jayaraman, Member (T)
1. These appeals have been filed against the Order-in-Original No. 419 to 421/2001/CAC/CC/A.S.S. dated 27.11.2001 passed by the Commissioner of Customs (Adjudication), Mumbai.
2. The appellants M/s. Mohan Aluminium are engaged in the manufacture of ASCR Moose Conductors and other allied products. Shri Rajesh Jain is the Managing Director of the appellant company. They obtained two Special Imprest Licence under DEEC Scheme for duty free import of Aluminium Ingots for the manufacture and deemed export of ASCR Moose Conductors to Maharashtra State Electricity Board. They had imported 2231.345 MTs, 100.362 MTs and 297 MTs. of Aluminium Ingots through Mumbai Navsheva and Kandla respectively duty free against the said licences cleared under Customs Notification Nos. 260/92 dated 27.8.2002 and 128/94 dated 10.6.94. Instead of using the imported material, the appellants had diverted and sold them in the local market for huge profits in violation of the DEEC Scheme and Customs Notification governing duty free imports. The DRI conducted elaborate investigation and consequently Show Cause Notices were issued to the appellants. The CBEC appointed the Commissioner of Customs (Adjudication), Customs Mumabi as common Adjudication Officer for all the three Show Cause Notices. The Adjudicating Authority passed the impugned dated 18.12.2001. The gist of the order is as follows:
(a) Denial of exemption under Notifications in respect of the imports made.
(b) Confirmation of demand of Customs duty of Rs. 6,07,67,478/- under proviso to Sub-section (1) of Section 28 of the Customs Act, 1962 in respect of clearances through Mumbai Port.
(c) Equal penalty under Section 114A in respect of the above amount in (b).
(d) Demand of Customs Duty of 50,83,301/- under proviso to Sub-section (1) to Section 28 of the Customs Act in respect of clearances through Kandla Port.
(e) Equal penalty under Section 114A of the Customs Act of the above amount in (d).
(f) Demand of Customs Duty of Rs. 17,02,959/- under proviso to Sub-section (1) to Section 28 of the Customs Act in respect of clearances through Nhava Sheva Port.
(g) Equal penalty under Section 114A of the Customs Act of the amount in (f) above,
(h) Penalty on the following noticees under Section 112 of the Customs Act.
a. Shri Ramesh Jain - Rs. 50,00,000/-
b. Shri Pankaj P. Shah - Rs. 20,00,000/-
c. Shri Ashok P. Shah - Rs. 5,00,000/-
(i) An amount of Rs. 3,00,00,000/- deposited by the appellant towards the duty demanded in respect of clearances through Mumbai Port has been appropriated.
The appellants strongly challenge the findings of the Adjudicating Authority.
3. S/Shri Kiran S. Javali and Lakshminaryana, the learned Advocates appeared for the appellants and Shri K. Sambi Reddy, the learned JDR, for the Revenue.
4. The learned Advocates urged the following points:
(i) The case of the Department is the violation of the conditions of Notification 260/92-Cus dated 27.8.1992 and 128/94-Cus dated 10.6.1994. Notification 128/94 stood amended last on 15.6.1996. The import by the appellant under one licence took place on 17.11.1994 and consequently, the Notification 128/94 as amended on 9.11.1994 would be applicable. Notification 260/92 was periodically amended and the last amendment was as on 26.5.1995. The said Notification was also amended on 17.1.1996. Hence, the import by the appellant under the other licence took place on 5.12.1995. Therefore, the Notification 260/92 as amended on 26.5.1995 is applicable.
(ii) The imported materials have been diverted after the completion of Export Obligation and realization of export proceeds. The supplies were made to projects approved as per Notification. In both the Notifications, one of the conditions is:
that the exempt materials are utilized for the manufacture of final goods and no portion of such materials shall be loaded, transferred, sold or disposed off in any other manner, provided that where the final goods in respect of which the said materials have been imported have already been manufactured and supplied as required under this Notification, the importer may use the said materials for the manufacture of any other goods.
(iii) It is submitted that export obligation had been completed and export proceedings realized. It is the understanding of the appellant that the restrictions has been only for disposing off the material prior to completion of the export obligation and receipt of export proceedings.
(iv) In view of the fact that the import had been done in this case after the export obligation was completed Clause (viii) of the Notification 204/92 itself would require that the order passed by the Original Authority is liable to be set aside.
(v) The Apex Court (Full Bench) in the case of East India Commercial Co. Ltd., Calcutta v. CC, Calcutta, reported in 1983 ELT 1342 (SC) held that breach of condition of the licence is not a breach of the relevant Order, SCC 167 (8) of Sea Customs Act, 1878 (corresponding to Section 111(2) and 111(e) of Customs Act, 1962.) The infringement of a condition in the import licence not to sell the imported goods to third parties, is not an infringement of the order which itself does not impose such a condition, and therefore, the said infringement does not attract Section 167(8) of the Sea Customs Act, 1878, if the goods have been validly imported.
(vi) The provisions of Section 114A and 28AB of the Customs Act came into effect from 28.9.1996. The imports and investigations were all prior to that period and consequently the penalty imposed and interest demanded in respect of each of the Show Cause Notice under Section 114A and Section 28AB is liable to be set aside.
(vii) The item imported is under OGL and hence no confiscation can be ordered. Reliance is placed on the decision in East West Exports - High Court of Madras.
(viii) In the impugned order, penalty has been imposed on Shri Ramesh Jain but not on Shri Rajesh Jain. When this was pointed out before the Hon'ble Bench, at the time of hearing the stay petition of the appellant, the Revenue subsequently issued a Corrigendum to OIO on 5.12.2000 correcting the mistake not by the one who passed the OIO but by a different person. It is submitted that once the OIO is passed by the Authority, subsequently he cannot pass or amend or convert the OIO as he becomes functus officio.
(ix) The violation of Section 111 of the Customs Act had not been alleged in the Show Cause Notice and consequently no penalty under Section 112 of the Customs Act could have been levied. Hence, the order passed is bad in law.
(x) Section 143A was required to have been invoked for demanding the duty in case of goods imported on Advance Licences and hence, invoking of provisions of Section 28 is bad in law.
(xi) The proceedings initiated were pursuant to licences granted by DGFT. The licences have been cancelled by the DGFT. Therefore, the proceedings were unsustainable after the licence stood cancelled and application of the conditions of Notification ceased to exist.
(xii) The learned Advocates relied on the following case-laws:
(a) CCE, Coimbatore v. Elgi Equipments Ltd. 2001 (128) ELT 52 (SC)
It is held that illegality committed prior to insertion of Section 11AC cannot be the subject matter of penalty under the said provision. In other words, Section 11AC will have only prospective operation.
(b) Stumpp, Schuele and Somappa Ltd. v. CC (Exports), Chennai 2006 (194) ELT 437 (Tri.-Bang.), wherein it is held that once export obligations have been fulfilled and the raw materials imported for replenishment to be used in the manufacture of goods, no duty can be demanded.
(c) Dolphins Drugs (P) Ltd. v. CC, Mumbai 1999 (35) RLT 80 (CEGAT) wherein it is held that the benefit of the Notification should not be denied on the ground that part of production of final products containing imported raw materials is cleared for home consumption when export obligation is fulfilled during extended period.
(d) KITPLY Industries Ltd. v. CC, New Kandla. 2001 (135) ELT 786 (Tri.-Kolkata), wherein it has held that import is permissible when export obligations had already been discharged by appellant prior to imports against advance licence and exact correlation is not to be made between export already made and imports of materials made subsequent to such export.
(e) Vorin Laboratories Ltd. v. CC, Chennai 2004 (92) ECC 443 (Tri.)
(f) P.J. Pipes and Vessels Ltd. v. CC, Mumbai it is held that when the goods are cleared without payment of duty or under concessional rate of duty in terms of Notification issued under Section 25 of the Customs Act, provisions of Section 28 are not applicable, there being no short levy or non levy.
(g) CCE, Mumbi v. Grand Foundry Ltd. and Ors. 2005 (120) ECR 322 (Tri.-Mumbai) - It is held that when the goods imported under Notification 204/92-Cus are sold to supporting manufacturers after fulfillment of export obligation, no violation of the provisions of the exemption notification is established and, therefore, no demand can be made.
5. The learned JDR urged the following points:
(i) The two Special Imprest Licences were issued as per para 56, 57, 67 of the Export and Import Policy 1992-1997 and para 127 of the Handbook of Procedures 1992-1997. It was stipulated that the licence and the goods imported are not transferable under any circumstances and the end product shall contain the imported items. Further, the importer executed a Letter of Undertaking (LUT)/Bond with the JDGFT, Bangalore and, thereafter executed the End-Use Bond with the Customs at the ports of importation in terms of Notification 260/92 and 128/94. After the above formalities, the appellants imported the goods through all the three Ports free of duty.
(ii) The DRI investigations revealed that the imported goods were sold in the black market without being brought to the declared manufacturing premises. The fact of the sale of goods was admitted by the importer, their financiers and local buyers/brokers and it was neither denied nor retracted at any stage. After so admitting the sale, they claimed that such sale is permitted under the Customs Notifications, as they had already fulfilled the deemed export obligation prior to imports.
(iii) When the matter was taken up with licencing authorities, they cancelled the two licences for violating the conditions under the Policy on 06.03.1998. The same was appealed against and the Appellate Authority, vide order dated 01.09.1998 upheld the cancellation of the licences. The cancellation of the two licences by the licensing authorities has reached the finality.
(iv) The correct legal position is that the goods imported against the licences are not transferable under any circumstances and the end product shall contain the inputs imported. Refer para 67 of the EXIM Policy, para 127 of the Handbook of Procedures, proviso to condition 5 of the Customs Notification 260/92, condition 6 of the Customs Notification 128/94 and the specific conditions prescribed under the said licences. Therefore, the sale, which is admitted and proved, is in total violation of the very DEEC Scheme and the Customs Notification.
(v) On verification of the claim of the appellant that the deemed exports were made by utilizing domestic inputs much before the actual import of the impugned goods, it is seen that they had claimed Modvat credit on the domestic inputs utilized in export product. They paid the Excise duty on the export product and refund of terminal duty was availed. Thus, there is no resultant incidence or suffering of any duty by them even with respect to the goods manufactured by utilizing the domestic inputs. Hence, there is no basis or locus standi for obtaining Special Imprest Licences as it amounts to availing the exemption twice on the same activity. The exports were made during the period from 13.10.1993 to 05.08.1995. The imports took place during the period 20.06.1996 to 27.12.1995. The diversion of the imported goods and the exports by utilizing domestic inputs were made during the same period. Out of total 42 exports made by utilizing the domestic inputs against Licence dated 20.10.1993, only 18 exports were made prior to imports. And the remaining 24 exports were made after the impugned duty free imports. In respect of licence dated 20.10.1994, out of total of 7 exports, only 3 were made prior to import and the remaining 4 exports were made after the impugned duty free imports. Hence, the claim of the appellant that the exports were completed prior to duty free imports is totally false. Therefore, the question of considering transferability of licence on the ground of fulfilling the export obligation prior to the act of import does not arise at all. Further, as per the Notifications, goods imported cannot be transferred or sold or disposed off in any other manner than in the manufacture of goods.
(vi) The impugned goods were sold without bringing to the declared manufacturing premises at Bangalore, by opening separate bank account in Mumbai and authorizing the partners/employees of the financiers to handle both the licences. For this reason, none of the imports were accounted in the factory records at Bangalore and in their financial statements for the period. After admitting all the charges with respect to sale of imported goods, they voluntarily paid three crores with the help of their financiers towards the duty liability. Shri Rajesh Jain, the MD of the Company, approached the Income Tax Settlement Commission to accept and settle the undisclosed income accrued on account of diversion and sale of duty free imported goods in the black market.
(vii) From the above it is seen that the appellant, with a very clear intention, defrauded the Revenue. Therefore, the goods are liable for confiscation under Section 111(o) of the Customs Act.
(viii) As the LUT is not discharged and goods are liable for confiscation, penalty shall be imposed under Section 114A read with proviso to Section 28.
(ix) The following case-laws are relied on:
a. South India Exports v. Joint Director of Foreign Trade 2004 (177) ELT 57 (Mad.)
b. Sheshank Sea Foods Pvt. Ltd. v. UOI
c. Kamath Packaging Ltd. v. UOI
d. Pooja Exporters v. Asst. Director, D.R.I.
e. Sriram Mills v. UOI 2000 (123) ELT 448 (A.P.)
f. Mysore Silk International v. CC, Bangalore 2004 (178) ELT 739 (Tri.-Bang.)
g. Bombay Hospital Trust v. CC, Sahar, Mumbai
i. Bihariji Enterprises v. CC, New Delhi 2001 (136) 912 (Tri.-Del.)
6. We have gone through the records of the case carefully. The following factual position is not under dispute:
6.1. The appellants obtained two Special Imprest Licences from the DGFT with certain conditions. They also executed LUT with the JDGFT. The imports were through the Ports of Mumbai, JNPT and Kandla. The goods were cleared free of duty.
6.2. The claim of the appellants is that they fulfilled the export obligations even prior to the import of the impugned goods. Revenue has clearly shown that the claim of the appellants regarding fulfillment of export obligation prior to imports is totally false. It is seen that there was actually only one export consignment prior to the obtaining of the two Special Imprest Licences. The learned JDR in the submissions, has given the factual details of the number of exports made prior to imports and that after the said imports. The DRI investigations revealed that the goods were sold without being brought to the declared manufacturing premises. There is clear admission of the sale by the importer, their financiers and local buyers. It is not the case of the appellant that they had given the statement under duress. They have also not retracted at any stage. Consequent to the DRI investigations, the matter was taken up with the licencing authorities. The licencing authorities had also cancelled both the licences vide their order dated 06.03.1998. The decision of the licencing authority has also been uphled by the Appellate Authority and the issue has reached finality. In the result, the imports made by the appellants are not covered by the two Special Imprest Licences at all in view of their cancellation. Consequently, the said imports are not entitled for the benefit of any Notification.
6.3. The learned Advocate argued strenuously to portray the appellants as innocent persons who, at the most, have committed some technical infractions of law. He tried to impress upon us that in view of the fact that the appellants had fulfilled the export obligations, there is no justification for demand of duty and also imposition of penalty. Further, he pointed out that Section 111(o) has not been invoked in the Show Cause Notice and, therefore, the Adjudication Order goes beyond the scope of the Show Cause Notice. His strenuous argument reminded us of the saying "Heads I win, tails you loose".
6.4. We shall examine the contentions of the learned Advocate in the light of the legal position brought out very clearly by the learned JDR.
6.5. There are two Special Imprest Licences. The following endorsement is made at the back of the Licence dated 20.10.1993:
1. THIS LICENCE AND GOODS IMPORTED AGAINST IT ARE NOT TRANSFERABLE UNDER ANY CIRCUMSTANCES.
2. THE END PRODUCT SHALL CONTAIN IMPORTED INPUTS. IMPORTS OF INPUTS ARE PERMITTED AS PER PARA 56 OF THE EXIM POLICY 92-97 (AS AMENDED ON 1.4.93) AND ARE ALLOWED DUTY FREE SUBJECT TO CUSTOM NOTIFICATION NO. 260/92 DT. 27.8.92 AS AMENDED.
From the above, it is very clear that the appellants have to use the imported goods in the end product. If they had sold it in black market and still maintain that they are innocent, none can accept their contention.
6.6. Next, let us go through the relevant provisions of Notification 128/94. Para 6 of the Notification is reproduced herein below:
6. that the exempt materials are utilized for the manufacture of final goods and no portion of such materials shall be loaned, transferred, sold or disposed of in any other manner.
Provided that where final goods in respect of which the said materials have been imported have already been manufactured and supplied as required under this notification, the importer may use the said materials for the manufacture of any other goods.
From the above provisions, it is clear that even in cases where the final goods have already been manufactured and supplied, the importer may use the said materials for the manufacture of any other goods. In other words, it is abundantly clear that the appellant is not allowed to sell the imported goods. We are reproducing the relevant provisions of Notification No. 260/92 dated 27.08.1992.:
5. the said imported materials are utilized for the manufacture of goods which are supplied to agencies specified in the Schedule and that no portion thereof shall be loaned, transferred, sold or disposed of in any other manner.
Provided that where obligations under the Licence have been fully discharged, sale proceeds realised and bond executed in terms of condition (3) has been redeemed by the licensing authority, the importer may, if benefit of input stage credit under Rule 56A or Rule 57A of the Central Excise Rules, 1944 has not been availed in respect of goods manufactured, transfer the imported materials to any person:
Provided further that no such transfer of materials imported against a licence issued after 31st March, 1993 shall be made after discharge of export obligation, realization of sale proceeds and redemption of bond by the licensing Authority and such materials may be used by the importer for manufacture of any other goods.
As per the Import-Export Policy, certain licenses are indeed transferable after fulfillment of export obligations. But in the case of Special Imprest Licence, such a facility is not available. We are reproducing para 127 (vi) of the Policy:
(vi). The facility of transferability shall not be available in the case of Special Imprest Licence/Advance Intermediate Licence and the materials imported against them.
Further, para 67 of Export-Import Policy 1992-1997 is reproduced below:
Transferability of Advance Licence
A quantity based Advance Licence (except a Special Imprest Licence) or the materials imported against it may be freely transferable after the export obligation is fulfilled and the bank guarantee/LUT redeemed.
Thus, the legal position is very clear on the issue. When the goods are imported under the Special Imprest Licence, in terms of the above Notifications and also the EXIM Policy, the goods cannot be transferred or sold on the ground that export obligations have been fulfilled. In view of this legal position, the appellants are liable to discharge the duty liability on the impugned goods.
6.7. The learned Advocates for the appellants made a point that the Show Cause Notice has not invoked Section 111(o) and, therefore, the impugned order goes beyond the scope of the Show Cause Notice. We have gone through the Show Cause Notice. There is a clear narration of the violation of Section 111(o) of the Customs Act for non-fulfillment of the conditions of the relevant Notifications even though in the operative portion of the Show Cause Notice, this Section has been omitted. In a case like this, we should take into account the entire notice and the absence of the provision of Section 111(o) in the operative portion cannot make the entire notice invalid. The investigations and the Notice have clearly brought out the facts that the appellants have sold the goods cleared free of duty in blatant violation of the conditions of the Notification. Hence, the goods are liable for confiscation under Section 111(o) of the Customs Act.
6.8. A point was made that Section 114A for penalty cannot be invoked in view of the fact that the violations relate to a period prior to the enactment of Section 114A. The learned Advocate relied on the decision of the Apex Court in the case of Elgi Equipments, cited supra. The learned Original Authority has justified the invocation of Section 114A in view of the following explanation to Section 114A inserted in 2000.
Explanation: For the removal of doubts, it is hereby declared that -
(i) the provisions of this section shall also apply to cases in which the order determining the duty or interest under Sub-section (2) of Section 28 relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President.
In view of the above explanation, invocation of 114A in the present case is correct. As regards the applicability of the decision in Elgy case, it is seen that in the said case, the explanation inserted in 2000 has not been dealt with. Therefore, the appellant cannot take advantage of that decision. Moreover, it cannot be said in the present case that the appellant committed the illegality only on a particular date even though the illegality starts right from the date of import and continues till the LUT/Bond executed with the authorities, is discharged. The date of import alone is not the criteria. Hence, Section 114A is squarely applicable to the present case. As per this explanation, if the Show Cause Notice is issued for the period prior to the date of Presidential Assent for the Finance Act, 2000.
6.9. Shri Rajesh Jain is the Managing Director of the appellant company. In the Adjudication Order, at certain places [in para 34, and in order portion (h)(i)], he is referred to as Ramesh Jain. While imposing penalty, the name Ramesh Jain is mentioned and later, a corrigendum has been issued. It is the contention of the appellant that once an order is issued, the Adjudicating Authority becomes functus officio and hence, the same is not admissible. We have considered this point. In the Adjudication Order, the role of Shri Rajesh Jain, in the entire episode is discussed. There is no person known as Ramesh Jain. Careless mistakes have crept in and on that account, we are not inclined to set aside the imposition of penalty. The mistake could be considered only a typographical error. We agree to the justification of penalty on Shri Rajesh Jain under Section 112 of the Customs Act. The Adjudicating Authority has given his finding in para 34 holding that Shri Ramesh Jain, imported the material in question and sold the same in the market without issuing bill and without accounting in the Book of Account in contravention of the Notification. There is an admission of Shri Pankaj P. Shah that he helped Shri Rajesh Jain who was in financial difficulty and instructed his staff to assist the import of goods and selling in domestic markets without bill. As a Managing Director, Shri Rajesh Jain is instrumental in perpetrating the mis-deeds and he cannot plead innocence. The imposition of penalty under Section 112 of the Customs Act is fully justified.
6.10. Since the impugned goods are liable for confiscation and are not available physically, the appellants are liable to pay redemption fine. However, no redemption fine has been imposed by the Adjudicating Authority. In these circumstances and also in view of the gravity of the offence, there is no justification for reducing the mandatory penalty imposed. The impugned order is legal and proper. The case-laws relied on by the learned Advocates are distinguishable.
6.11. Summing up, we hold that there is very clear evidence of violation of the conditions of the relevant Notifications by the appellants who have sold the duty free goods without utilizing the same in the final products. The impugned goods are liable for confiscation under Section 111(o) and the appellants are liable for penalty under Section 114A. Hence, we uphold the OIO and reject the appeal.
(Propounded in open Court on 22.11.2006)